Transferring employees from one company to another in Australia – what you need to know!

The buying and selling of businesses in Australia is… well, big business. In fact, there are 720 business brokers whose whole job is to help you buy and sell a business. And many of these transactions happen with the help of business lawyers too.

But when you buy or sell a business, what happens to the employees? In fact, one of the most important considerations when you sell a business is the transfer of employees. It impacts the lives of the employees and also has legal and financial implications on both the outgoing and incoming business owners.

So, if you’re thinking about selling or buying a business here in Australia, you’ll also need to consider the process of transferring employees from one company to another. Here’s what you need to knowTransferring employees from one company to another in Australia.
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Transferring employees from one company to another in Australia

The actual process for transferring employees from one company to another in Australia depends on how you’re structuring the sale. There are two main methods for a business sale. These are share sales and asset sales.

Share sales

In a share sale the entity that operates the business stays the same but the shareholders and directors of the company change. They’ll become the purchaser and the purchaser’s nominated directors.

When it comes to the employees, with a share sale the employees don’t transfer. Instead, they stay employees of the business. This means that they keep all their entitlements including annual leave and long service leave, and keep the same pay rates and other employment conditions.

This type of sale is primarily done via a share purchase agreement.

Asset sale

An asset sale, as opposed to a share sale, is where the purchaser’s entity (typically a company) buys assets of the business from the current owner, the operating entity. The purchaser will likely buy things like machinery, plant and equipment, land and buildings, contracts and intellectual property among other things which will help them continue to run the business.

Just like with the other assets, the new owner can ‘purchase’ the business with the employees or they can choose to purchase the business without them. As with all the assets, generally, the parties will negotiate these transfers.

If the new owner does decide to take on the employees of the business, they must comply with Fair Work requirements. That means they have to honour agreed-upon personal leave, annual leave, long service leave, existing flexible working arrangements, parental leave arrangements, and any overtime pay.  On the other hand, the purchaser isn’t required to honour these entitlements for non-transferring employees. The seller must pay out their equivalent to the employees before the final transfer of the business assets.

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Legal obligations to employees

Regardless of how a business is sold, both the vendor and purchaser will have some legal obligations to the employees of a business on its sale.

• Notice of change. Employees must be given formal notice of change of ownership.
• Transfer of employment. Fair Work requirements to transfer entitlements must be followed. And the new owner must also recognise the duration of service an employee had with a former owner.
• Final payments. The vendor and the purchaser must finalise all payments owed to employees before the final sale. This includes regular wages, accrued leave and any redundancy payments. Not meeting this requirement could lead to legal obligations and financial liabilities later on.

Practical steps for business owners

For a smooth transition of employees on a business sale there are some practical steps you can take.

1. Update employee records and provide these to new owner
2. Undertake transition planning which includes the knowledge and culture of the workplace
3. Consult with legal and financial advisors – both parties should consult with legal and financial advisors to ensure that all aspects of the employee transfer comply with employment laws and tax requirements.
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Getting help transferring employees on the sale of your business

There are a lot of moving pieces whenever you buy or sell a business. And transferring your employees is one of the biggest pieces. Having the right support from the start ensures that you’re meeting all your obligations AND doing your best for the employees of the business too.

If you need help understanding the ins and outs of buying or selling a business, get in touch. Our team is here to help! You can also find more free resources and blogs on our website.

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